FYI: USE THE RIGHT tool for the job and you’ll get the best result. If you need to connect two boards, you could use a hammer and a nail or a screwdriver and a screw. Either methods work—and they’re certainly better than banging in a screw with a hammer, which I’ve seen tried. It was not effective.
Participants in 401(k) plans, alas, display similar behavior with target date funds, or TDFs. A TDF offers a diversified portfolio in a single fund, with the mix of stocks and bonds changing as you approach retirement. When used correctly, the fund’s asset allocation should be appropriate for your age—aggressive while you’re young and becoming more conservative as you age. There’s no need to trade or adjust the mix. The fund does that automatically. The evidence, however, suggests many people use TDFs incorrectly.
Regards,
Ted
Comments
Derf
Happy Thankgiving
Ted
https://humbledollar.com/2019/11/missing-the-target/
I've since modified my view to include a couple of variations:
1. TDFs are designed with retirement glidepaths. If one is planning to bequeath an investment to someone, it might make sense to put that investment into a separate TDF with a target date matched to the legatee's age. This expands the ability to use TDFs in a hands-off manner.
2. On the opposite end of the spectrum, some people want to be actively involved in managing their portfolios. A TDF's glidepath may not exactly match what they they want, e.g. they may want equities a bit higher than the glidepath in pre-retirement and a bit lower in early retirement. Such investors could build their own portfolios and manage their own glidepaths. Or they could use a TDF as the foundation ("core") of their portfolio and manage smaller complimentary investments to fine tune their holdings.
Here's the Humble Investor post by "Mark Eckman, a data-oriented CPA with a focus on employee benefit plans."
https://humbledollar.com/2019/11/missing-the-target/